Five tips for cutting costs and improving vendor negotiations

These are tough times for IT. There are less people and resources to get things done, budgets are shrinking and everyone still expects the same levels of service and functionality.

Something has to give.

With budgets being so constrained it’s even more important than ever to get the best value for every dollar spent. Even in this tough, budget conscious, economy there are still some purchases that must be made, services that have to be paid for and maintenance contracts that have to be renewed.

So how do you ensure that you are getting the

best deals possible from your vendors?

There are the obvious; we all know the best time to get the best deal from the vendor is the end of the quarter/end of the year but there are more things we can do to make even those deals better.

Here are some steps to ensure you are getting the very best pricing on your IT expenditures:

1. Get the Right People Involved

In today’s complex world, the ability to both negotiate a contract and have a firm grasp on the technological needs involved are both crucial to a successful negotiation.

The person negotiating with the vendor can be at a significant disadvantage if they do not understand the intricacies of the technology and may not be aware of what they might be giving up.

Negotiating software licensing, maintenance and other technology contracts are totally unique and very different to other types of purchases and agreements.

Likewise, the technical person who knows the technological demands may not have the necessary negotiation and procurement skills. They may not be comfortable with the negotiation process or have limited experience. Make sure that whomever is talking to the vendor has both skills, even if it means getting outside help.

2. Fear, Uncertainty & Doubt (FUD)

Vendors have become impervious to the techniques of intimidation and abuse. Salespeople have become accustomed to being blamed for everything by their customers and their own management team.

Intimidation is not an effective tactic for someone who has learned to roll with the punches. The harsh tactics of the traditional hard-nosed procurement and negotiation methods no longer work.

What makes salespeople really uncomfortable is the unknown: not knowing where they stand and if there are alternative solutions that are undercutting them. A more effective method is to build uncertainty.

“We’re considering alternative solutions/methods/partners etc.” doesn’t say much but gives you leverage. Avoid giving out to much information, hint at competition or alternatives but don’t threaten. Be as vague as possible and let them imagine the worst.

3. Get the Account Manager on Board

We all know the highest levels of discounts are only achieved through the highest level of the vendor’s management. We also know that salespeople will do whatever it takes to win a sale. Who knows better how to work the involvement of the approval system than your salesperson?

When the account manager believes they can get a sale if your terms are met, he or she will become your best ally and most powerful weapon in getting you what you need. Let them do the work for you.

4. Know Your Options

There is always competition, even when negotiating maintenance pricing. There is always an alternative.

Third-party service providers, internal support alternatives, modified support agreements-even maintenance agreements have alternatives. The key is to convince the vendor that you have a serious alternative.

You may assume that only the original vendor can provide the service support and that’s not always the case.

There are a growing number of companies specializing in supporting third party applications. There are also hybrid alternatives, ie. self-support, reduced coverage, block hours, and the list goes on.

And when it comes to hardware, there are numerous third party options that can provide the same (sometimes higher levels) of service at a significantly reduced cost. Coupled with item two above, this method can produce good results.

Shop the Resellers

Many vendors are working to reduce their cost of sales by utilizing their channel partners more than ever before. Both hardware and software resellers compete vigorously to become your primary reseller.

Due to their unique position, they become an invaluable ally in dealing with the vendor to maximize discounts and structure deals that are the most favorable to you.

Many resellers will also pass on some of their margin to win your business. It becomes a win-win for the reseller, you get a better deal and they get more volume, which in turn helps them get better rates from the vendor, which they can eventually pass on again.

Don’t assume that your current reseller always has the best price available. Like everyone, they become complacent and need a wake up call sometimes. Shop around and find a reseller who will work hard for your business by getting the best deal for you.

Finally, the best piece of advice is very simple: Don’t be afraid to ask for a better price. Just remember, if you don’t ask-you don’t get.

Martin Ewing is the principal at Pactoris, Inc. He has worked in the IT Industry for nearly 30 years and was the CIO of a multibillion dollar corporation before founding Pactoris in 2001. His company specializes in IT cost reduction and IT contract negotiations.


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